Gross Tilts at Windmills and Has No Gilt
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Thursday, January 7, 2010

Gross Tilts at Windmills and Has No Gilt

William H. Gross
Managing Director, Co-Founder, Co-CIO
Bill Gross' massive Total Return Fund held 63 percent of its assets in government-related debt in November, but Gross is no longer happy with buying more government debt, especially if it's American, British or Japanese.

"If, in 2009, Pimco recommended shaking hands with the government, we now ponder 'which' government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries," Gross states in his January investment outlook podcast. "If these trends persist, the simple conclusion is that interest rates will rise on a relative basis in the U.S., U.K. and Japan compared to Germany over the next several years and that the increase could approximate 100 basis points or more ... If exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009."

Gross' podcast follows the recent revelation that Pimco is cutting back on its U.S. Treasury and British Gilt holdings.

"We are currently cutting back in the U.S. and U.K.," Pimco managing director Paul McCulley stated in a cyclical outlook Q&A on Pimco's website. "On the other hand, we remain modestly bullish on duration in the Eurozone, which has been congenitally disinclined to be aggressively Keynesian and won't face the same degree of reduction in central bank duration buying in 2010."

"Say it ain't so, Pimco," Fox Business' Neil Cavuto said when he heard the news.

Meanwhile, as per usual, the ever outspoken and irrepressible Gross touches on plenty of non-investment themes in his podcast, too. Comparing himself to Cervantes' man of La Mancha, Don Quixote, Gross advocates completely eliminating all campaign contributions of any kind from our national democratic process.

"There will be no change, until we the American people decide to publicly finance all national and local elections and ban the writing of even a $1 check for our favorite candidates," Gross fumes. "Any chance that any of this will happen? Not one ghost of a chance ... Still, I mount my steed, lance in hand, and ride forward."

The Wall Street Journal's Min Zeng and Prabha Natarajan put Gross' remarks in the context of remarks from the December meeting of Federal Open Committee.

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